29 August 2007

How to Calculate Man Months and Man Month Rates

The terminology Man Months is used in many places.

During Proposal Preparation and Negotiation stages i.e. for budgeting:

Proposers have to provide their Consortium with their Man Month Rates and good estimates as to the
number of Man Months required to carry out the work that is being allocated to them - these figures
may be revised during the Negotiation Stage.
A Man Month Rate is the amount of money it costs the Organisation to employ a person this is not just
the individuals gross salary.
Cost of Employment = Salary + Employers Contribution + any accountable benefits (e.g. Car, Mobile
Telephone, Pension, etc.)
It is also normal practice to provide a single average for this rate per organisation. When different levels
of staff are to be used, for budgetary purposes it is best to use a single weighted average that reflects the
relative ratio of different levels of staff. It is of course possible to calculate this using a spread sheet that
reflects the envisaged staff time per salary bracket.
Participants should also remember that this is a future average for the projected length of the project, so it
should take into account envisaged increases and salary levels for the project duration. Use of some
properly justified percentage increase per annum for inflation or exchange rate expected fluctuation (for
those outside the Euro zone) can be factored in.
During Project Reporting:
In order to claim funding from the Commission for completed Project work, beneficiaries have to
provide the Commission with forms and reports that show how much money was spent carrying out the
work and how long it took.
For the Financial Reports, you have to declare what the personnel costs were on the project. In order to
work them out, you have to know who worked on the project and for how many hours (via timesheets).
This figure is then multiplied up by their Hourly Rate. This is calculated by taking the monthly gross
salary plus benefits plus employers costs etc., per employee and dividing this monthly cost by the
average monthly number of productive (i.e. excluding sickness, courses, vacations, etc). The personnel
cost for the reporting period is the addition of the monthly productive hours on the project multiplied by
the months calculated hourly rate. In our opinion it is better (and far simpler) if the calculation is based
on annual rather than monthly figures.
Man Month Calculation
It is important that the figures used for salary costs; the hourly rate; the number of net productive hours
and man months as reported in the form C, for the Justification of Expenses Report and for the
Management (Activity) Report, are all based on the same figures for net productive hours and man
months, and are reconcilable one to the other.
The organisation should therefore have calculated an estimate for the net productive annual hours per a
person or a department, based on an employee working full time. In FP5 the EU determined this would

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1,680 productive hours per annum or 140 productive hours per a month for those working a 5 day 8 hour
a day week.
In FP7 the organisation has to use their own actual figures and therefore should make its own
calculations which may well not be exactly 1,680 hours in a year. Any major variation from 1,680 net
productive hours in a year may well be queried by your auditor and/or EU and therefore care should be
taken to ensure that there is clear justification for the difference.
Man Month Calculation Example
Days
Annual
Less Weekends

365
104

Net

261

National/statuary holidays, etc.

Annual vacation
Annual sickness
Company training / courses
Staff meetings, etc.

8
21
12
5
3
49
212

Annual net productive time

Hours
(based on 8
hour day)

2,088

392
1,696 (141.33 hours per month)

This is based on working 8 hours per day not including lunch break.
On the basis of this example, the number of productive hours actually reported by each employee will be
divided by 141.33, in order to arrive at the main months for the activity reports.
Disclaimer
The aim and purpose of this and other leaflets is to raise awareness of the framework program financial
issues, and not to give legally binding advice. It is intended to provide relevant information which may
be of assistance to anyone with financial queries or concerns. This leaflet has been produced jointly
under the Finance Helpdesk which was started by the EU IST Finance-NMS-IST project Contract
Number:015481, and by EFPConsulting Ltd. Both the Finance Helpdesk and EFPConsulting Ltd.
endeavour to deliver a high level service for this purpose. Notwithstanding this, no guarantee can be
given on the correctness or completeness of the information provided and neither the European
Commission, nor EFPConsulting are responsible or may be held accountable for any loss suffered as a
result of this leaflet. Any information given does not necessarily reflect the official position of the
European Commission. In this regard, it should be noted that the information provided is considered to
be of a first line assistance and users should contact the competent authorities, organisations, or private
firms for more detailed information or for advice on any course of action.
Authors: Graham Feldman, CPA (Isr.), FCA (UK)
Dana Remes
EFPConsulting Ltd.

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Revision: V3

29 Aug 2007
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